There are funds that use futures contracts, swaps and other derivatives to deliver an exposure that is more complex than a basket of stocks. In addition to VIXH there are levered and inverse index funds, products tracking Italian bond futures (no, really,) and other products that require some understanding of the derivative products the fund will use and the market being replicated.
A great example of possible investor disappointment can be seen in comparing the iPath S&P 500 VIX Short Term Futures ETN (VXX) and the actual VIX index. Since inception in February 2009 VXX is down 97% while the underlying index is only down 66%. This is due in part to VXX tracking near term futures not the actual index and the extent to which replacing expiring futures contracts with replacements is often done at a loss, a market condition known at contango.
The expense ratio for VIXH is 0.60% which isn't necessarily expensive if the strategy protects investors from some sort of large market decline, but if the Federal Reserve Bank's policy of QE-Infinity continues to send markets higher, then VIXH will lag plain vanilla index funds.
At the time of publication the author held no positions in any of the stocks mentioned.This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV